FDIC and Charter Savings Reach Accord on Heritage Bank Lawsuits

A tight knot of litigation created by the collapse of Anaheim-based Heritage Bank more than three years ago began to unravel Monday as federal regulators and Charter Savings Bank in Huntington Beach settled their differences.

The deal, struck before Orange County Superior Court Judge Jerrold S. Oliver, was the first substantial partial settlement of the complex litigation brought by the Federal Deposit Insurance Corp. on claims arising from the March, 1984, failure of Heritage Bank.

The FDIC named Orange Coast Savings & Loan Assn.--as Charter was then called--in its $150 million suit alleging fraud and wrongdoing against former owners, directors, borrowers and others involved in the bank’s collapse.

The primary target of the suit is Douglas E. Patty, the bank’s chairman who helped organize Orange Coast. He and other bank directors served also as directors of the S&L.;

The FDIC, acting as the bank’s receiver, said loan participations between the two financial institutions favored the S&L; and contributed to Heritage’s downfall. The S&L;, in turn, sued the agency for its share of assets from loans jointly made with Heritage.

In all, the S&L; had participated in 23 loans with Heritage as the lead lender; five of those loans went into default and became a subject of the litigation.

The FDIC and Charter Savings had previously reached a settlement, but that was challenged by other defendants sued by the regulatory agency.

Under the agreement reached Monday, the S&L; will forgo its right to collect nearly $560,000 on defaulted participation loans and will get $600,000 to $700,000 in reimbursements from the sale of collateral that the FDIC seized in taking over the bank, said Philip J. Giacinti Jr., Charter’s lawyer.

FDIC lawyer Robert Peterson said at a hearing Monday that Oliver suggested that the savings and loan settlement might set a benchmark for deals with other defendants.

Heritage was Orange County’s largest independent bank when it was closed. It opened in 1975 with $2 million in capital and grew to a high of $291 million with nine branches in 1982.

Its assets had dropped to $190 million by the time it was seized by federal regulators on March 16, 1984.